India Fares Poorly in Mutual Fund Penetration

Oct 24, 2017

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Indian households have traditionally favoured real estate and gold as means of investments. However, growing financial awareness has led to a rise in financial savings. Among financial assets, mutual funds still have a lot of catching up to do. The share of mutual funds in financial savings remains abysmally low at 2.9%. Currency and deposits, on the other hand, have a lion's share of 40% whereas insurance and pension contribute a quarter each to overall financial savings.

No wonder, India has the lowest mutual fund penetration globally. The total Assets under Management (AUM) to GDP ratio of India stands at a mere 10%, way below the global average of 55%. Countries like Australia and the US have AUM to GDP ratios of over 100%. So, the mutual fund industry in the country provides huge scope for growth and development. Real estate and gold have become less attractive forms of investments post notebandi. Even the reduction in bank deposit rates in the past year has led to a shift in investment to mutual funds and the stock markets.

Also, the government's efforts to increase banking penetration through Jan Dhan Yojana and higher digitisation are also expected to boost financial savings. Factors such as favourable demographic profile with a young working population, rise in income levels, increasing financial literacy and retail participation and buoyancy in capital markets supporting equity AUM, are expected to drive the growth of the mutual fund industry in the long term. The mutual fund industry has grown at an annual rate of 18% in the past decade, and is expected to grow by 20% over the next five years.

With buoyant capital markets and the mutual fund industry on a roll, asset management companies are eager to unlock value through initial public offerings. And the first mover in this race is Anil Ambani promoted Reliance Nippon Life Asset Management Company that has lined up a Rs 15.4 billion offering.

Data Source: Reliance Nippon Draft Red Herring Prospectus

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